A trucking company plans to buy 100,000 gallons of diesel fuel in January. The spot market price is 2.40/gallon. The company can remove its risk by entering today into a (cash settled) forward contract at $2.50/gallon, whereby it receives from the counterparty the difference between 2.50 and the spot price in January (x100,000) if the spot price is above 2.50, and pays the difference if it is below 2.50.

a. true
b. false

Answer: a. true

Business

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